Scandal-hit Petrobras may issue earnings in April: JP Morgan

A policeman stands in front of the Petrobras headquarters during a protest in Rio de Janeiro March 4, 2015. REUTERS/Sergio Moraes

RIO DE JANEIRO (Reuters) - Petróleo Brasileiro SA, struggling with fallout from a corruption scandal and a decline in oil prices, could release audited financial information this month despite facing “a perfect storm,” analysts at JPMorgan Securities said on Tuesday.

In a client note, JPMorgan analysts led by Marcos Severine said the state-run company known as Petrobras could report third- and fourth-quarter earnings this month and book a one-off average asset impairment of 29.4 billion reais ($9.37 billion) due to a graft scheme that may have inflated the value of some assets.

Rio de Janeiro-based Petrobras, which is Latin America’s most indebted listed oil company, delayed the release of its results in the wake of accusations that it systematically overpaid for assets and work by contractors. The excess funds may have been funneled to political parties including President Dilma Rousseff’s ruling Workers’ Party, prosecutors said.

According to the JP Morgan note, Petrobras’ “perfect storm” began last year with the launch of the corruption probe known as “Operation Car Wash” and intensified with the plunge in oil prices, Moody’s Investors Service’s decision to cut the company’s debt rating to below investment grade, and a tumbling Brazilian currency.

Petrobras has the ability to preserve cash and reduce debt, although questions remain as to whether the federal government - which controls almost half of the company’s capital - will adopt the necessary measures to curb capital spending, JP Morgan said.

“The journey back to health will take time and is likely to require a good bit of ‘blood, sweat and tears’ to put the company back on track,” the note said. “At this point, we do not know how the parent may alter Petrobras’ course.”

The report underscores the short-term headwinds facing Petrobras, once the crown jewel of Brazil’s economy but in recent years a symbol of the country’s financial problems, partly because of the Rousseff administration’s meddling in the company’s affairs.

At this moment, Severine and his team believe Petrobras “is a binary call, with more short-term downside than upside risks, given the lack of visibility of the relevant themes.” Although, at current prices, shares of the company might seem attractive, many potential drivers depend on government decisions, the note said.

Severine took over coverage of Petrobras with a “neutral” recommendation. He set price targets of 11 reais for the preferred shares of Petrobras (PETR4.SA) and $7 for Petrobras’ American common depositary receipts (PBR.N).